Texas requires large load developers to post financial security before utilities plan and build infrastructure for them. Under the Public Utility Commission of Texas’ (PUCT) new rule, that financial security requirement starts at $50,000 per megawatt - implying that for a 200 MW project, the initial requirement is $10 million of security. The security protects other customers if a project falls through after the interconnecting utility has incurred costs to build that project’s supporting infrastructure.
Broadly, to support these financial obligations, project developers can provide cash, a qualifying guaranty (e.g., a surety), or a bank letter of credit. In markets such as Virginia and Oregon, utilities have made the decision to accept surety bonds to help offset the financial burden of these obligations.
PUCT, however, considered surety bonds but excluded them, citing unstandardized differences in bond terms that could make payment uncertain relative to letters of credit. In doing so, PUCT reduced available collateral for energy projects relative to states such as VA and OR. That reasoning overlooks how much the surety market has changed and how many other markets are now accepting these forms of financial security.
Bond terms can be standardized
The PUCT decision to exclude surety bonds from the set of acceptable financial instruments for interconnection security hinged in part on the fact that surety bond terms are mutable. Other markets have conversely leveraged that mutability to create specific forms of bonds that sureties, MGAs, brokers, and developers can all agree satisfy the financial security requirements of bank LCs.
The PUCT could specify which interconnection obligations a surety bond covers, how a utility makes a claim, and when the surety must pay. Texas already has a model for standardizing these terms: ERCOT requires market counterparties that use surety bonds for obligations owed to ERCOT to use an unmodified, board-approved form that requires payment by the next business day after notice of default. That bond does not secure a large-load developer’s obligations to its interconnecting utility, but it shows how Texas could prescribe a separate bond form for that purpose rather than exclude bonds altogether.
Insurance is already carrying some of this risk
When a utility requires a bank letter of credit, a developer can arrange a surety to back a bank-issued letter of credit. The bank issues the LC and pays the utility if it draws; the surety then reimburses the bank. This arrangement can cost less than a conventional LC and preserve the developer’s existing bank credit line, while giving the utility the instrument it requires.
The bank earns a fronting fee, but it still uses issuance capacity to provide the LC. As data center demand pushes banks toward their exposure limits, allowing utilities to accept a standard bond directly from a surety could remove that extra step and unlock additional bank capacity. Developers could then draw on surety capacity without needing bank issuance, expanding the financing available for new projects.
Expanding resource deployment, not collateral risk
The PUCT can build on ERCOT’s standard bond form and the use of surety in interconnection arrangements in Virginia and Oregon. It should define the obligations a large load bond must cover, the documents required for a claim, and the deadline for payment. Utilities could then accept bonds that meet the same collection standard required of other security.
Texas, via the PUCT, can widen the pool of viable projects and reduce costs while holding firm on protection against a developer’s default by allowing this form of capital accepted in other markets. Allowing surety bonds would give developers another critical source of capacity as banks approach their exposure limits. It could also lower the cost of posting security by 20-50% per $1 of credit, leaving more capital available for the energy infrastructure needed to serve new load. Where a surety bond costs less than a letter of credit, competition can pass some of those savings through to load serving entities and their customers.
Sources
Public Utility Commission of Texas, Project No. 58481, Order Adopting New 16 TAC §25.194, filed September 18, 2026. Uploaded in three parts as 58481_218_1684654.PDF, 58481_218_1684655.PDF, and 58481_218_1684656.PDF. The discussion of accepted security and surety bonds appears on order pages 122–126; the adopted security requirements appear on pages 235–237 and 250–253. The rule is also available in the Texas Register.
ERCOT, Surety Bond standard form, uploaded as Surety Bond 2023 (2).docx. The “Payment” provision sets out the demand process and next-business-day payment requirement. ERCOT’s 2023 market notice explains when the board-approved form took effect and its required use for market participants.
Virginia State Corporation Commission, interconnection proceeding document, page 32.
Oregon Public Utility Commission, Order No. 26-154, page 38.
Gallagher, “Commercial Surety Spotlight: Surety Backed Letters of Credit”. Describes the bank fronting structure, its fees, and its potential effect on a developer’s bank credit line.
This article is for informational purposes only and does not constitute legal, financial, or investment advice.
Got a deal that needs collateral? Comity can help.
Comity supports a wide range of collateral posting needs in the power and digital infrastructure space. Emailing us or booking a 30-minute call is the fastest way to find out how we can help.